There is much confusion concerning IRAs, but especially with seniors when it comes to tax matters. The following information was taken from the Seniors Real Estate Specialist (SRES) course that I recently completed. In future articles, I will write about or duplicate some important details that will help the senior market in a variety of ways. When we consider that the “senior market” encompasses several decades of various age groups, there is a lot to learn even for the families of aging parents. I hope some of what I have learned will be valuable to others.
A traditional IRA. Roth IRA, or SEP can own real estate in a self-directed account. Eligible types of property are land, commercial property, rental condominiums or residential property, trust deeds, and real estate contracts. The purchase must involve an IRA custodian or trustee specializing in real estate. The custodian or trustee actually makes the purchase on behalf of the account owner and holds the title to property. However, there are some important limitations. An owner cannot have any personal use of the property, which means that a personal residence or vacation home CANNOT be owned by an IRA. Real estate that is already owned cannot be placed in the IRA.
All of the property expenses, such as taxes, insurance and repairs, must be paid from funds in the IRA, which means liquid funds must be available in the account. Income generated from the investment is deposited in the IRA; the IRA owns the property, which can provide the liquid funds needed for expenses.
Real estate may be withdrawn from an IRA for use as a residence or vacation home when the owner reaches age 59 ½; the IRA can sell the property or transfer the title to the owner. Income tax will be due on the current value of the property if it has been held in a traditional IRA; if the property was held in a Roth IRA, there is no tax on the distribution.
Anyone who is interested in purchasing real property to hold in an IRA or SEP should definitely seek out professional assistance with someone knowledgeable in real estate IRAs through financial advisors. Whippet Properties of Florida has a list of highly reputable team experts we can recommend.